The goal of the Finance Manager is to maximize the market value of the companys shareholders equity. This would include acquiring both short and long-term debt and equity at favorable terms for the company. It would also include prudent expenditures for long term capital investments.

Management of the Dexter Cotton Gin Company, Inc. is considering investing in a new Cotton Gin. The following information has been calculated or estimated for this project. The firms weighted cost of capital is 12% and their composite income tax rate is 35%. All financial results are calculated on an after-tax basis. The companys management has also adopted a capital budgeting policy: (1) No projects greater than $5 million, (2) No payback greater than 4 years and (3) IRR must be greater than 12%.

New Cotton Gin Cost - $1,000,000

Cotton Gins Estimated Useful Life 5 years

Cotton Gins Salvage Value - $300,000

Annual Sales per year

(1) $600,000

(2) $600,000

(3) $550,000

(4) $400,000

(5) $300,000

Annual Administrative Expenses are 5% of Sales

Annual Operating Expenses are 25% of Sales

Annual Maintenance Expenses are 10% of Sales

Note: Administrative, Operating and Maintenance Expenses do not include Depreciation Expense.

Calculate and Discuss the following Financial Returns: (show your work) Net Income

Net Operating Cash Flows

Pay Back

Present Value

Net Present Value

Internal Rate of Return